Weak Dollar Policy Props Up Wall Street

Wall Street has its own version of the cash-for-clunkers program and it's called the weak dollar policy. The trouble with telling Americans that they are being impacted by a weak dollar policy is that, to most people, monetary policy is an abstract-pretty much like "hope and change."

However, there is one very concrete indicator of the dollar value and it is the price of solid, cold, hold-in-your-hand gold. That's right, ladies and gentlemen, your earrings and necklaces may be worth more melted down than they are around your neck or adorning your ears, fingers, belly buttons or well, we won't go there. But don't consider selling your jewelry now, because gold jewelry is liable to continue gaining value as the dollar continues to lose strength. In plain language, it will cost you lots more dollars to re-stock your gold jewelry collection. Though headed down so far today, the price of gold yesterday jumped to $1050 per ounce. Gold traders believe that gold prices have found a permanent home above $1000 per ounce, up from its long-time floor of $900.

What moves the price of gold upwards and weakens the strength of your dollars? In uncertain times, people go for the sure thing-precious metals like gold. Gold is always worth something. Dollar currency has lost "11.9 percent of its value against a basket of currencies since President Barack Obama took office," reports the Wall Street Journal.

President Obama and his economic team have made several public statements that they support a strong dollar, but this is window dressing for a monetary policy that moves it in the opposite direction. The Wall Street Journal frontpage article quotes Treasury guy Tim Geithner:

"It's very important to the United States that we have a strong dollar.... We're going to do everything necessary to sustain confidence."

The second part of the quote is the one to read closely. Geithner doesn't say the Treasury and Fed will act to strength the dollar-that could be done with an increase in interest rates. The key idea is to "sustain confidence." That means so long as common people, being sacrificial lambs 0n the altar of economic "stimulus," neither notice nor complain about their loss of purchasing power, interest rates will remain historically low. Consumer CD and Treasury Bond interest rates are negligible, trailing inflation rates. People who are fortunate enough to have savings, are losing ground as Wall Street stocks rise, fueled on the government steroidal infusion of cheap bucks. Banks and large institutional borrowers get the money from the taxpayer practically for free and put it out to the "little guy" at 5 percent loan interest rates to the consumer.

Fed Chairman Ben Bernanke is aware of the potential dangers of a weak dollar and said yesterday that the U.S. would raise interest rates as soon as the economy recovers. Read that one to mean that they're watching it closely, but are terrified of overshadowing the appearance of recovery. Meanwhile, the guy (Rubini) who predicted the last "bubble" worries publicly about the Fed creating another one. Perceptions were never so important as they are today, and public perception is the Daily Bible reading of the Obama administration.

The administration can point to an "economic recovery" in process even though unemployment has gotten far worse and approaches ten percent. The administration had promised that its economic stimulus plan would freeze unemployment at 8 percent, and since that hasn't worked, the economic team is frantically pushing more cheap dollars into the market by printing money and by "easy credit terms" -for banks. That's the real stimulus-flooding the world with cheap dollars, a move praised but not copied by our Euro counterparts--until now it begins to hurt their investments too.

The cheap dollar may not benefit ordinary people, but it does benefit Wall Street and corporate profits. Goods and products manufactured in the United States are cheaper, and we export more of them, improving trade deficit. In theory, that could create manufacturing jobs but hasn't done so. The reason? Layoffs and overseas profits increase the corporation's profit line. Merrill Lynch Research points out that 40 percent of the pre-tax profits of companies in the Standard and Poor's 500 stock index come from abroad, and can fuel a rise in U.S. stocks," the Wall Street Journal article says.

The top-secret news of the "economic recovery" touted by the Obama administration is that the "recovery" is founded on catering to the profit needs of giant financial firms. What bothers me, personally, is the fundamental dishonesty of an administration which would have people believing the opposite. Tell the truth, Obama! We can handle it. Isn't that why you always hedge your economic remarks with assurances that "I've always been a believer in the free market?" By this, free marketeer Obama means centralized control of the economy, financial firm bailouts, government ownership of car and insurance companies, and plenty of well-placed Wall Street connections

Don't you love it when a guy gets to be president by fighting for the underprivileged "little guy?" It's a wonder the Nobel committee didn't give President Obama the Nobel Prize in economics.